The role of arbitrage risk on the elasticity of demand: New evidence from 100% secondary equity offerings

William B. Elliott and Hilmi Songur

Finance Research Letters, 2016, vol. 19, issue C, 165-172

Abstract: We examine the elasticity of demand curves using a recent sample of 100% secondary equity offerings (i.e., a large block of shares held by current shareholders; the proceeds of the sale go to the selling shareholders, not the issuing company) and employ measures of arbitrage risk that allow us to control for variation in arbitrage risk. We find that demand curves are inelastic for firms with high levels of arbitrage risk and elastic for all others. We also document that during the second half of our sample period demand curves are elastic for all stocks regardless of the arbitrage risk.

Keywords: Arbitrage risk; Demand curves; Price pressure; Decimalization (search for similar items in EconPapers)
JEL-codes: G14 G30 G32 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:19:y:2016:i:c:p:165-172

DOI: 10.1016/j.frl.2016.07.008

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